Cryptocurrency plays a significant role in the Russian-Ukrainian conflict, which has helped facilitate the flow of necessary funds to Ukrainian citizens and soldiers.
The Ukrainian government and non-governmental organizations (NGOs) supporting the war effort have raised $59.2 million in cryptocurrency donations, even as digital coin exchanges face pressure to cut transactions from non-sanctioned Russians.
These funds are minuscule compared to the billions Ukraine receives from NATO allies, but the flood of crowdsourced cryptocurrency donations has been a boon for the country, according to Alex Bornyakov, Deputy Minister of Ukraine’s Digital Transformation Ministry.
“In times like these, response time is critical. Cryptocurrency plays a role to give us the flexibility to react very quickly to deliver the supplies the army needs,” Bornyakov said in an interview with Yahoo Finance Live.
On February 24, when Russian bombs bombarded major cities, Bornyakov was forced to leave Kyiv.
Two days later, Bornyakov’s boss, Deputy Prime Minister of Ukraine Mykhailo Fedorov, tweeted the addresses of Bitcoin (BTC-USD) and Ethereum (ETH-USD) wallets asking for crowdsourced cryptocurrency donations.
According to data tracked by blockchain analytics firm Elliptic, most of the donations to Ukraine were paid out in ether and bitcoin, but donators also sent PolkaDot (DOT-USD) cryptocurrency as well as stablecoins like Tether (USDT-USD). and even Crypto Punk NFTs.
Cryptocurrencies offer faster transaction times, although not all providers still accept them as payment, Bornyakov said. Currently, the government converts donated crypto assets into dollars or euros through the Ukrainian exchange Kuna, which also holds the funds.
Last week, the Ukrainian government teased the “scattering” of rewards to cryptocurrency donors, possibly in the form of non-fungible tokens (NFTs), which led to a surge in government donations.
Initially, the “awareness initiative” of crypto investors was quick to send smaller amounts in anticipation of rewards. However, the government decided to delay the reward offer amid growing cybersecurity concerns related to the intrusion.
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“Perhaps at some point it will be dropped by air, but right now Russia is very active in its military actions, so we need to focus on protecting our country, and not on further drops,” Bornyakov explained.
‘Blood money’
This illustration, taken on March 1, 2022, shows Russian ruble banknotes and images of the Bitcoin cryptocurrency. REUTERS/Dado Ruvic/Illustration
As the Ukrainian government embraced cryptocurrencies at a time of need, some U.S. politicians, such as Senator Elizabeth Warren, have also raised concerns that digital tokens could help Russian organizations avoid sanctions.
Despite full compliance with Western sanctions, the world’s leading cryptocurrency exchanges are resisting calls for a total denial of service to all Russian customers, even as major tech and financial companies have completely severed ties with Russia.
“Some ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them are probably opposed to what their country is doing and the ban will hurt them too.” wrote Coinbase Global CEO Brian Armstrong on Twitter just before midnight last Thursday.
“If the US government decides to impose a ban, we will, of course, follow these laws,” Armstrong added.
However, several analysts, as well as Todd Conklin, adviser to the U.S. Deputy Secretary of the Treasury, have suggested that crypto cannot be used to circumvent sanctions completely, given the practical limitations.
“You can’t flip a switch overnight and fire up the G20 economy on crypto,” Conklin said in a recent webinar with analytics firm TRM Labs.
Bornyakov is vehemently opposed to the idea that any funding channels should remain open to Russia. He criticized this as a form of “blood money” that the Kremlin could use to finance an invasion.
Regulators require large centralized cryptocurrency exchanges with US clients to have sanctions enforcement. These firms use blockchain analysis software that traces the provenance of funds sent to them, just like federal agencies.
According to Ari Redbord, head of legal and government affairs, the most likely scenario that could play out in the short term, aside from US sanctions, is that certain high-risk non-compliant exchanges will be sanctioned by the Treasury Department in the near future. TRM laboratory.
TRM recently identified 340 well-connected crypto companies in Russia that it considers high-risk, such as lesser-known OTC marketplaces.
“It is very difficult to move large amounts of illegal cryptocurrencies, so there will most likely be smaller amounts in the margins. In my opinion, these are the places that sanctioned entities are likely to look for cryptocurrencies from time to time,” said Redbord, a former adviser to the US Department of the Treasury.
David Hollerith handles cryptocurrencies for Yahoo Finance. Follow him @dshallers.
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